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Thursday, October 27, 2016

The Rigged Economy

Bill Bonner sees many aspects of the economy as being "rigged" .. "We’ve been arguing for years that fixing the price of credit by central banks would have the same consequences as fixing any other price: disaster. If you set the price of credit too high, borrowing gets too expensive, and the shelves groan with unsold inventory as you punish demand. If you set the price too low, buyers are happy at first, until the manufacturer gets tired of taking losses and the product disappears .. The influence of serial credit bubbles on the economy’s structure of production: the resources devotes to capital goods and consumer goods production have kept drifting apart in favor of the former and to the detriment of the latter. If one scours the internet for things to buy, there is always a wealth of goods to choose from. And yet, we have noticed – this is a purely anecdotal observation, mind – that increasingly often, these products are actually no longer available .. The only price that works is the one you don’t set, the one that is discovered by buyers and sellers moving freely as supply and demand shift. So it was that when the Fed nailed the price of credit to the floor, we expected the typical debacle." .. the result - what is happening now: "Central banks are starting to buy up corporate bonds, not just government bonds, to keep the system inflated – so they are acquiring risky assets themselves and giving preference to some companies over others .. Pushing down interest rates punishes ordinary savers; it benefits big borrowers, the rich, and Wall Street. That is the way the system is really rigged."LINK HERE to the essay

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